Wednesday, September 11, 2019

This October marks the 10th anniversary of the Lean Startup Conference. We’ve come a long way over the last decade, but this year we also decided to go back to the fundamentals. This past spring, we used our own techniques to structure and plan a program that truly meets customer needs. Our team was deeply invested in the process and as Hisham Ibrahim, Senior Faculty at Lean Startup Co. described it, “The program you'll see at this year's conference is a direct result of us getting out there and talking with our customers.”

It began by brainstorming a series of assumptions about topics and skills of interest and conference formats that we planned to test out.

After prioritizing which ones were both most critical to the success of the conference and least certain, we created a discovery guide — essentially a list of questions designed to give us real information about what people are most interested in learning at this year’s conference, and in what kinds of session format. We spent a few weeks speaking to pre-registered 2019 conference attendees, and asked them things like:

• What’s your current level of Lean Startup expertise?
• What size is your company and what’s your role there?
• What challenges are you facing at work?
• What do you hope to learn from the conference?
• What problems do you hope to solve?
• What were the memorable features of another recent conference you’ve attended?

The discovery process brought us two major insights:

1. A list of topics that people wanted to learn more about, which included solutions for tactical challenges like conducting effective customer interviews, and getting venture capital funding, as well as broader challenges like methods of innovating outside of the software world, leadership transformation, rapid prototyping, and innovation accounting for startups within enterprises.

2. An understanding that conference attendees want sessions tailored to multiple experience levels, depending on whether they’re new to Lean Startup or coming to us with some practice under their belts.

From there, we ran an experiment. Since effective customer discovery is based on observing how people actually behave rather than how they say they’ll behave, we sent a larger number of pre-registrants a mocked-up conference program (our MVP), offering them the chance to sign up for sessions based on what we’d learned, without telling them it wasn’t the real thing. Included in the offerings were workshops on every topic that had come up in our discovery process each one designated as “beginner,” “advanced” or “applicable to all.”

When more than half the test group signed up for advanced sessions, we knew it was time to build a variety of levels into our signature practical workshops. The numbers were also very clear on what people wanted to learn about most: the fundamentals, like defining customer problems, conducting effective interviews, and applying the methodology outside of technology.

From all of this work, the conference’s new Core Concepts track was born. As Hisham explained, the demand for this addition was obvious “in our debriefing and analysis both from the qualitative conversations and interviews that we did, as well as from the MVP. People wanted to be able to learn about an end-to-end holistic innovation process. In past conferences, we might have touched on these different components of innovation but not deeply and not in an organized way.”

Now, we’ve created a mini-curriculum within the conference that walks participants through the innovation process from A to Z — from problem discovery using effective interviews through solution discovery, prototyping, introducing Lean into your enterprise, and on to designing experiments (at two different levels). The work done at each stage will serve as the content for what follows. What you learn in Problem Discovery will be the basis of the work you do in Solution Discovery, which will then be your jumping off point for Experiment Design. Also included in this track are sessions on accounting for innovation projects, and storytelling.

By taking participants through a complete innovation cycle, we hope to give you not just a taste of what Lean can do, but real learning that you can take back to your organization and use to solve real world problems. This is just one of this year’s tracks developed on feedback. There are also tracks for Enterprise & Government, Startups, and Nonprofit & Lean Impact.

We’re also pleased to be offering another new kind of session: the opportunity to receive personalized coaching for your team of 2-4 people. Expert faculty will provide guidance to 10-15 teams selected to participate after filling out this application. Each team will leave with specific, actionable steps on how to move their project(s) forward. All the details about the deadline and selection dates, as well as when the coaching will take place during the conference are included in the application.

We’re thrilled we’ve been able to build a program that will give every conference participant the experience and value they’re seeking.

Monday, August 19, 2019

We’ve spent a
lot of time this past year running Lean Startup tests on our annual flagship conference to really nail down what you’re most interested in. The results
have helped guide our planning and I’m really excited about all the new options
and sessions we’ve come up with for the October 23-25 event in San Francisco.

We’ll gather at the Palace of Fine Arts for workshops, talks, case studies, networking, and will host an amazing lineup of participants from diverse backgrounds and industries. Our goal—again, based on feedback—is to continue broadening the reach of Lean Startup and embracing the numerous ways people are using it. 2019 will be our most dynamic, varied conference yet, and because all the events are under one roof, you’ll have tons of chances to meet up with fellow attendees, speakers, and experts to share and connect in informal settings.

Our mainstage will also be packed with opportunities to learn and be inspired. Arlan Hamilton, Founder and Managing Partner of Backstage Capital, built her company while homeless. She and Twitch founderJustin Kan will have a fireside chat about running a venture capital firm dedicated to minimizing funding disparities in tech by investing in people of color, women, and/or LGBT. We’ll hear from Scott Kupor, managing partner at Andreesen Horowitz, on how to get venture capital, and his colleague Katie Haun, a General Partner at the firm, on building crypto-currency. Morgan DeBaun of Blavity will talk about founding and growing the largest lifestyle brand for black millenials and not being afraid to fail while doing it. Tien Tzuo, Founder and CEO of Zuora, the world’s largest subscription management platform, will share more than a decade of insights on the subscription economy. He’ll discuss how business leaders of all kinds can position their companies to thrive in marketing, IT, finance, product, and sales. We’ll get an honest account of what it’s really like to do a major pivot from CircleUp founder Ryan Caldbeck, and I’ll be talking with Andy Rachleff, CEO of Wealthfront and Co-Founder of Benchmark Capital, about his 35 years in Silicon Valley (a little sneak preview is here). And that’s just a small sampling of who will be with us.

I hope you’ll consider joining us for what promises to be an enlightening and invigorating few days thanks to the many people who will be sharing their stories and expertise with us. As always, I’m amazed to see how far Lean Startup has traveled, and excited to hear from all of them.

Thursday, July 11, 2019

Ann Miura-Ko is a founding partner at Floodgate, a seed-stage VC firm. She’s also a founding member of All Raise, a non-profit committed to improving diversity in both funders and founders. Among her early investments are Lyft, TaskRabbit and Modcloth, which, as our recent conversation shows, are only part of the reason Forbes called her “the most powerful woman in startups.”

We talked with her about her teaching position at Stanford, how she thinks about the future, and how she makes investment decisions. Ann will be speaking at this year’s Lean Startup Conference in October about all of this and more.

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Let’s start off with how and why you helped found All Raise and what its mission is.

I've been in venture now twice. The first time was just for a couple years, from 2001-2003, before I went to grad school. I was in Boston, working for the first time in venture capital as an analyst for this guy who was incredible and an amazing mentor. But I wanted to see if there were other incredible people in the industry who were women since I hadn't encountered any. There were none in the firm, so I remember asking him if he knew of any general partners who were women in the Boston area. In a place where there are many, many venture capital firms, he couldn't think of a single female general partner.

I had a mom who had very low tolerance for complaining about whether or not there were people like me either in class or at work. She always told me, “That's not where you’re supposed to make friends anyway. It's fine that you have no friends in class - you're there to learn.” But when I returned to venture in 2008, I remember wanting to see people who were similar to me in some sense, but I didn’t see that as much as I would've hoped. I was in California at that point, where there were a handful of women, which to me was already really inspirational. It felt like it was the right time and the right place to start putting a voice to that. For a long time, I felt like I should just be the change that I wanted to see, but I couldn't do that by myself. The more people who could join me on that journey, the more powerful we could be together.

Are those the women who joined you to create All Raise?

Yes. We got started over casual breakfasts. It was actually really driven by Aileen Lee from Cowboy Ventures and Jess Lee from Sequoia Capital. This was around the time when a lot of sexual harassment issues were coming to light. We just looked around the table and Aileen said, “I think we should do something more than sit around and have breakfast.” That was when different initiatives started popping up. Initially, it was people picking up and doing things with one another that felt right. I was working on putting together dinners with potential female operators who were interested in becoming venture capitalists. I was getting calls from all these women and was giving them different kinds of advice, but the same message kept coming out over and over again. So I thought, “Hey, if we could put all these women in one room, deliver this message to a lot of them, and then also bring in women who've just been through that process. How amazing, how empowering would that be?”

What's the message?

Talking to them about what's normal at a venture capital firm and what isn’t, helping them to understand how they can have power within an organization, and making sure that they're set up for success when they walk in.

It’s answers to questions like: What do you look for in a partnership? What questions can you ask? What do you need to know about your compensation? How do you develop power within a venture capital firm? Where am I in the interview process? Because it takes a really, really long time to get to know a venture capital firm, and you need to understand the dynamics going in. Also, it's not unusual for the interview process to take months. So the other thing is how you look out for a firm that’s really only trying to hire a woman to check the box against a list of things that they need to fulfill versus looking for you, with all of your expertise and the things you know, and putting the right resources behind you to make sure you're successful. That was what I worked on in the initial days.

Eventually, I joined Jenny Lefcourt in the initiative called Founders for Change, where we’re amplifying the voices of the founders who are demanding greater representation and diversity not only within their organization, their cap table, and their board rooms, but also in terms of the makeup of all of these organizations. What I was interested in seeing was that a lot of these founders believe that they’re not just creating technology, they're creating change and culture. They believe they need the same support from their investors, and that means investors and funds have to represent that mindset. Well known founders within Silicon Valley demanded this kind of change across the board, and if they wanted to see it internally, they also had to see it within the organizations that touched their group. I thought that the voice of the founder was so powerful in delivering that message back to the venture firm: if we're the founders, we're going to be looking at these issues as we evaluate our sources of capital.

Let’s move to Floodgate now. To begin with, I'm curious about the company name and how you came up with it.

We were originally called Maples Investments, because my co-founding partner is Mike Maples, and we had that as a placeholder. At one point he said to me, “Hey, do you think this is going to hold you back?” And I said, “Yeah, unless we call it Maples-Miura-Ko Investments, it's probably going to hold me back.” He then said he had no attachment to the name and wanted to set up our partnership for success, so we started looking for another name. We worked with this guy who’s since passed away but who was the brains behind naming the Kindle and TiVo, among other things. He had this amazing way of coming up with the essence of an organization and what you're trying to do, and he had a whole list of names. We were really drawn to Floodgate because we believe that we're at the headwaters of change. That was the image that we had in our minds as we were naming the organization.

How does Floodgate complement All Raise? Do you think of them as sort of a pair, or are they totally separate?

For me, again, it's always been if I don't see something that works for me, I can be the change. I can be the person who represents the thing that I want to see. Before we started Floodgate, I was actually thinking about starting my own company. I was getting my PhD in mass modeling of cybersecurity, and I wanted to start a company in that space. This opportunity kind of fell in my lap, and it was during a period when I knew that computing was becoming cheaper because I was going through the PhD process. I also knew that there was massive opensource software that was available. That meant that if the change was starting on the founders side, then there had to be a change on the financing side.

I remember when I was talking to Mike Maples about starting Floodgate, I got a lot of people telling me that I should join a large venture capital firm with a good name and work my way up. What I did instead was what I imagine other founders feel when they see the right opportunity in front of them and everyone's telling them it's a stupid idea. You dig in your heels and you say, “Of course this is the right thing to do.” For me, it was the worst possible timing. I had not finished my PhD. I had an 18 month-old daughter. I think a few months after I started Floodgate I was pregnant with my second child. And so, I'm trying to finish my PhD, start this venture firm, and carry my second child. It's complete chaos. But, the belief in what we were building was so pure and so urgent that it's something that I'm still proud of to this day. In 2008, as the financial crisis was happening, we saw this opportunity and we pursued it. To me, that's very representative of how I believe founders react to different situations, and an example of authentically believing in a business. Our focus and our values came out of that, and the moment—like the one so many founders have – when Mike and I were the only two people in the firm. We didn't have signage on the door front. We had to unclog the toilets. Everything was either him or me.

What are Floodgate’s values?

One is: do what's right. We're always so close to company founders because we're there at inception, so we feel like the most important thing for us is to do what's right, all the time. Second, we believe that greatness is a decision. It's not something that just sort of happens. You have to wake up every morning and decide to be great and decide to demand greatness from people around you, and that's something that we're fundamentally committed to.

We know that the founder's job and founder's work is actually their life's work. Otherwise, they wouldn't be doing this. And so, our third value is that your life's work is our life's work. We want to treat the entrepreneur's project or company not as a deal but as if it is our own life's work as well. Our fourth value is that we seek truth over tribalism, so we have a very fundamental philosophy that truth doesn't come from any particular place or title. Every single person who walks in the door might have seeds of truth, and it’s our job to seek that out and to understand it. It's not about the most popular person or the most popular idea, but rather what is true. That gets back to the idea that when we first started Floodgate we always thought of ourselves as being owners and not just employees, and what that comes down to for me is bias for impact. You're always thinking through how can you have the most impact instead of how you can keep yourself busy.

Does that play in to the companies that you choose to invest in?

Yeah, I mean there's a lot of that because when we think about how we invest in companies, we’re not thinking about just a product that people want. To me, that’s only a small piece of what we're investing in. We invest in a company that I hope will have a legacy 30, 40, 50 years from now. Those values reflect that, but it goes further. When I'm assessing a company, I think of it as a full stack. We start off at the very bottom with the team that we want to see. Who is in that team? What are they capable of? Are they able to build the things that they want to do? Are they all-in? The second level is what we call proprietary power, which is the secrets that they know that no one else knows? Many of those are earned secrets, so it's because they've had experience in that particular space. Probably the first question that I ask founders is why is this your life's work? And, that usually elicits something around the secrets that they know are true.

Above that is product power, and for me that's about what is the path to getting to product-market fit? Then above that is business model power—so, how do you make money? How do you not only make money in terms of revenue and revenue growth, but ultimately how do you develop profits and a profit center? Above that is company power, which is really about your organization and your decision-making processes. How do you develop power within your organization to understand your values and how you're driving towards the future, and also what is the future that you're driving towards and why? And then the last, and potentially most important, is category power: what is a category that you ultimately define as a company? How do you develop the rules of that game so that you have the advantage? And when people think of that category, why is it that they think of your company? All of this helps you become the king of that category. Those are all the things that we think about when we're assessing a company. Now, many of those parts of that stack get developed much later in building out the company, but we want to see signs that a founder and their team can actually develop all of those skillsets.

You also teach. You're obviously very busy, so I'm curious why you do that in addition to everything else, and how it fits into the whole picture. What you can do in that kind of a setting that you can't do at Floodgate or at All Raise?

Well, I think it's a few things. I teach a lot. This last year, I taught a blockchain class. I'm a co-director now for the Mayfield Fellows Program, which runs for nine months at Stanford. And then I taught a class called “Intelligent Growth in Startups” in the engineering department. I think the reason I like to teach is when I have to explain things that I know to other people, it crystallizes what I know and what I don't know. The second reason is when you get to know students on a very fundamental and personal level, particularly in the Mayfield Fellows Program, where I'm teaching 12 students for nine months, you develop a deep sense of optimism about the future. I love the way that these students look at the world. It reminds me of how I used to look at the world and see all the possibilities. I think as you enter into your 40s and 50s, you just become naturally a little bit more grouchy and a little bit more set in your ways, and I think teaching keeps you forever young. I love that feeling of optimism. But also when I’m teaching something and someone has the courage to question it, they will make me think again. Without that, I feel like I would just get more set in my ways. So, teaching is important to me in order to maintain optimism about the companies that I'm seeing and the possibilities for the future.

Looking at the future in another way, you have three kids now. Do you keep them in mind you think about which companies to invest in and the world we’re all creating for them?

In some sense, I love looking at the world and trying to imagine where things will go in the future, and obviously my kids are a part of that future. It's influenced me a lot in terms of how I think about educating my kids, but not so much the investments that I make today, because a lot of those investments are mostly for adults. They’re products that are applicable to the people here now. We might think about the impact that those businesses will have on kids in the future, but for me, it really comes back to the education piece, which I think a lot about. I think a lot about literacy and computer science and math and statistics. I think a lot about what are the human elements of work that won't be ever replaced by a machine, which is really around judgment.

The future is also about the ability to see around corners and imagine, so I think about the skillsets my kids need that don't get taught in schools today that I wish were taught in schools. I think about the places like Stanford, for example, where we could start to talk about ethics and how do we get technologists to engage in that conversation. Those are the two fundamental ways that, as I work as a VC and as I work as an educator, I try to incorporate how I want my kids to grow up into the work that I do.

Is there an area you think is in desperate need of innovation that no one has dipped their foot into yet? Some sort of pet obsession you wonder why no one is fixing?

Oh my gosh, I have a lot. On the consumer side, I have a real interest in how society has become much more secular and the hole that's been left since people don't go to church anymore. Whether that’s the opportunities for service, the opportunities to connect with people who are not like you, the opportunities to teach your children on a very regular basis the fundamentals of what is right and wrong and to have some sense of universal values. I think that there is a huge hole there, and you see that hole being filled in kind of darker ways. I wonder if there's more of a positive opportunity in that space. I haven't seen anything, but I feel like there's a hunger for more connection. You hear about the epidemic of loneliness, and I think these ideas are all very much tied to one another.

Another area I’m interested in around connecting and having a space to express yourself is the future of remote work. As people work much more remotely and in distributed teams, there's this very unsolved problem around knowledge management. This idea pops up once in a while and people become interested in it, but people still use SharePoint from Microsoft and the file sharing companies haven't really solved how to maintain a knowledge base. So, as people become remote workers, how do you express what your expertise is? I think those things become really, really important over time, so I’m looking for solutions in that space as well.

Okay, last one. What’s your go-to method for stress relief?

I love playing piano. I've been playing since I was four, and I'm trying different styles of piano now because I've been mostly a classical pianist all my life. I’m interested in that as my own personal form of meditation. I've been really bad about being able to completely clear my mind, but I've realized that whenever I play the piano it's just me, the notes, and what I'm trying to play. It's probably as close to meditation as I'll ever get.

Wednesday, June 19, 2019

Andy Rachleff co-founded the venture capital firm Benchmark Capital in 1995. In 2005, he retired to focus on giving back, beginning by teaching technology entrepreneurship courses at Stanford, becoming a trustee at the University of Pennsylvania (which he attended undergrad), and funding cancer research with his wife. Then in 2008, he had a revelation from his experience on the Penn endowment board about how to democratize investing advice and “accidentally” founded a new company to do it. Wealthfront, which began as an automated investment management service and has since expanded into banking (it currently offers one of the highest interest rates on FDIC-insured cash accounts), now manages almost $15 billion in assets. He’s currently the CEO of the company.

Andy and I will be having a fireside chat at this year’s Lean Startup Conference in October. Meanwhile, we recently talked with him about his thoughts on 35 years in Silicon Valley, why the skill sets of venture capitalists and CEOs are so different, and why telling a good story about your product is so crucial.

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You’ve been in Silicon Valley since the early days. How has it changed and not changed over the last few decades? I’m sure you have unique perspective on that.

Probably the biggest change that I've noticed in the Valley is the transition from startups focusing on hardware, to startups built on software, and what that implies about the venture model as well.

In the old days, when companies built hardware, they were all examples of high technical risk and low market risk. If they really could build what they said they could, then you knew that people would buy the product. There were instances of, "I want to offer 10 times the performance, or 10 times the storage, or 10 times the bandwidth, or 1/10 the latency," and if you could actually deliver on that in the timeframe proposed, you could feel pretty confident that you would build a big business.

As we transitioned to a software-driven world, we moved from high technical risk, low market risk, to the opposite: low technical risk, high market risk. You knew you could build what you set out to build. The question was, did anyone want it? How would you know that someone wants a ride-hailing service? How would you know that someone wants to rent a room in your apartment? How would you know that someone wants to buy a Beanie Baby from you? It's literally impossible.

And how has that affected venture capital?

Previously, on the venture side you wanted to invest as early as possible, because the first round of financing got you to a product, and then you'd get beta-type customers, and then you'd raise a second round at a much higher price, and the business could immediately take off from there. So the venture process was all about trying to figure out whether or not people could deliver what they said they could, and you typically invested as early as possible at a $5 million pre-money valuation, hoping the company would be worth $500 million, in which case you'd make 20 to 30 times your money. It was 20 to 30, not 100, because of the dilution from the capital.

Venture capitalists know that the thing that causes their companies to go out of business is lack of a market, not poor execution. So it's a fool's errand to back a company that proposes to do a ride-hailing service or renting a room or something as crazy as that. Again--how would you know if it’s going to work? So the venture industry outsourced that market risk to the angel community. The angel community thinks they won it away from the venture community, but nothing could be further from the truth, because it's a sucker bet. It's a horrible risk/reward. The venture capitalists said, "Okay, let the angels invest at a $5 million valuation and take all of that market risk. We'll invest at a $50 million valuation. We have to pay up if it works." Now they hope the company will be worth $5 billion to make the same return as they would have in the old model. Interestingly, there now are as many companies worth $5 billion today as there were companies worth $500 million 20 years ago, which is why the returns of the premier venture capital firms have stayed the same or even gone up.

Was this happening while you were still at Benchmark?

It was starting to happen as I was retiring. It was a lot less appealing to me to be a growth equity investor, but that's not why I retired. I retired because Benchmark has an agreement that’s unusual in the venture industry. It's the only always-equal partnership, and the only way you can have an always-equal partnership, where new people join as equal partners, is for the older partners to get out of the way when they're not as productive. So we made a pact among the founders that when any of us reached the point that we weren't willing to go 110%, you had to opt out. I loved what I was doing, but I'd been successful, and I wasn't willing to work as hard. Having helped create the culture, I believed in it. I was the second partner to opt out.

So although you were not willing to work as hard, you then founded a startup, which is... arguably the exact opposite of not working so hard!

Yeah, but that was a total accident. That was not the plan.

How did it happen?

I had a life well beyond anything that I ever could've imagined, financially, for sure. So I wanted to give back when I retired. This has always been a theme among all the Benchmark partners. I decided to teach at my grad school alma mater. I became a trustee at my undergrad alma mater, Penn. My wife and I funded an innovative cancer research funding initiative. I was really focused on social good. One of my responsibilities as a Penn trustee was to sit on their endowment investment board, which I now chair. The premier university endowments are by far the best-managed large pools of capital in the world, and they all invest very similarly.

Well, one day I was sitting in a presentation from the investment team on how they generate their great returns, and it struck me that much of what they do is manual and spreadsheet-based, and that if you automated it in software, you could deliver an 80/20 of what they do, and thereby democratize access to sophisticated financial advice.

This wasn’t that long ago, right? Why do you think it hadn't been done yet?

I'm a big believer that people don't find great ideas, great ideas find people. Steve Blank actually wrote about this--that great technology companies are built based on inflection points in technology, which cause an authentic founder to say, "Ah, with this change, I can create this new product." Then the question becomes, who wants that product? That's the exact opposite of every entrepreneurship book that had been written prior to Steve, which said the job of an entrepreneur is to evaluate a market, try to find problems, and come up with solutions. That leads to very mundane outcomes. That's not how great companies are built in technology. Without change, there's seldom opportunity.

You couldn't do that what I had proposed to do before, because two technology changes that made it possible hadn’t happened. One was that APIs were made available by brokerage firms, and the other was the advent and popularity of the ETF--the exchange-traded fund, which is an index fund that trades like a stock. You couldn't do what we ended up doing without those two changes.

So I was sitting in this meeting, and it just struck me that, God, you could do an 80/20 on the endowments, and really deliver an amazing service. This was near and dear to my heart, because over the years as a venture capitalist, I had recruited a lot of people to join my portfolio companies who went on to financial success, and they would often come to me for investment advice. I could never tell them to do what I do, because I could afford access to the premier products, which had much higher minimums. It always struck me as wrong that you needed to have money to make money.

I thought, "Oh, I'll start it as a hobby, and if it turns into something, I'll hire a CEO. I've done that my entire career, and that shouldn't be so hard." But here I am – still CEO -- eight years after Wealthfront launched.

You had all this time as a venture capitalist and now you’ve had all this time as a startup--you've really seen it from both sides now. I imagine it’s given you unique insights into that relationship.

The joke I like to make is that as a board member I talk a lot less, now that I've seen how the sausage is really made. Almost no skills from being a venture capitalist translate to being a CEO, and vice versa. Because venture capitalists hire people with operating backgrounds, people think that that means that they value the operating skill. That's not it at all. It's the network that came from success in an operating role that the venture capitalists are attracted to.

So what are the skillsets for each?

They're radically different. Many people have now come to me looking for advice as to which path they should pursue, operating or investment. The way that I help them is, I put an iPhone down on the table and I say, "Imagine that it's 2006, and you see this device sitting on the table. Is your first instinct to turn it over to see who makes it, and to try to figure out what it might cost, and how is it distributed, and how many people might want it? Or is your first instinct to ask, why doesn't it have a keyboard? And why did they sell it through their own store? Why didn't they sell it through other stores?” If you're the first person, you're an investor. If you're the second person, you're an operator.

Which of those would you pick if someone gave you that test?

I'm an investor. The only thing that I brought with me to Wealthfront from venture capital that helps me as a CEO, other than having been exposed to an unusually large number of very good CEOs, is that the venture capital industry is predicated on slugging percentage, not batting average. It's not the percentage of times that you succeed, it's the magnitude of the ones that succeed. It's better to be right two out of 10 times where the two are 20-times winners than it is to be right every single time and only have small wins each time.

Human nature leads us to want to be right every time. That's how we're evaluated in most everything in our lives. But without risk, you don't get reward. My joke for my students is, what do you call a venture capitalist who's never lost money? The answer is: unemployed, because I don't want them as my partner. If you don't take risks, you don't get big returns. So I apply the same thing to running the company. We're going to try a lot of different products, not all of which are going to work, and I don't care. I just care about the magnitude of the ones that do. That's really, really hard for inexperienced employees to get.

So what’s the solve for that?

Constantly talk about it. Employees are not entrepreneurs. And only the really great entrepreneurs get this--but there are few really great ones. Most hedge. You can't hedge.

Look at how few succeed. I don't think entrepreneurs fail because they were bad people. They fail because they didn't find the right market. But they don't understand that. Part of finding the right market means, if something isn't working, you abandon it and you move on to the next thing. When companies succeed, they revise history, because no company succeeds in its initial strategy. Literally no company. But the average consumer doesn’t want to hear that. They want to think that you've set out to build and deliver the product they wanted.

Why do you think that matters to the average consumer? That's a very interesting perception.

Because people, human beings, by their nature, are risk-averse. If I hear that you didn't build the product for me and that you did it accidentally, I'm going to have less confidence that buying your product is the right thing to do. Look how Apple revised history of the iPod and the iPhone. They said they were Steve Jobs's inventions. They weren't. He had nothing to do with them. The Apple marketing machine made you believe it, because it made you feel better about buying them. The true creator of the iPod was a guy named Tony Fadell, who went on to start Nest as well. He recognized the value of iTunes. There were a lot of MP3 players back then, but he realized that iTunes on the Mac, where you could rip your songs, was the ideal tool to deliver a better digital music experience, and that syncing to iTunes was the key. That's what he pitched Jobs on, and Jobs funded him to do it, like a venture capitalist. That's not the story that was told.

What’s is the overarching story of Wealthfront? Why does it exist? Why does it need to exist?

We're building a next-generation banking service that helps you manage both for your short-term and your long-term needs, and we do it with a complete suite of products, including one of the highest-paying FDIC-insured cash account on the market, best-in-class investment services, and free financial advice, all available to you any time via your mobile phone. Where we're going is the concept of Self-Driving Money™. We want to get to the point where you can direct deposit your paycheck with us, we'll automatically pay your bills, and we'll route the remaining money to the most appropriate place, whether inside Wealthfront or outside, based on your particular situation and goals. We can do all of that so you never have to worry about your finances again.

That sounds ideal. And almost too good to be true.

It does. That's the reaction we get from people. But we'll be able to demonstrate a lot of it by the end of this year.

Friday, May 31, 2019

Scott Kupor is the managing partner at Andreessen Horowitz, where he’s responsible for all operational aspects of running the firm. He's been with the firm since its inception in 2009 and has overseen its rapid growth, from three employees to 150+ and from $300 million in assets under management to more than $10 billion. He’ll be speaking at this year’s Lean Startup Conference, and also has a new book (for which I very happily wrote a short foreword) coming out next month: Secrets of Sand Hill Road: Venture Capital and How to Get It.

I caught up with him recently to talk about venture capital from both sides of the equation, investing for the long-term, missed opportunities, and how he gets good ideas.

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Let's start with something basic. What is venture capital, really? What is its ultimate purpose? And what does a venture capital firm do?

At its most basic form, venture capital is a source of funding for companies that are too risky to be ideal candidates for other forms of funding, like a bank loan. It’s meant to support and grow a business until an “exit” in the form of an IPO, a merger or acquisition, or in less than ideal scenarios, a company shutdown. It’s also important to say that while many successful technology companies have been venture-backed--Apple, Amazon, Google and Facebook come to mind-- it’s not solely a funding method for technology companies. Many very successful, non-technology companies have also been products of venture capital, including Home Depot, Starbucks, and Staples.

Traditionally, the role of a venture capital firm was to write a check to a company, and stay up-to-date on its progress at quarterly board meetings. The reality today is that capital is more available than ever and entrepreneurs have become more sophisticated, so founders are looking for more than just cash from their venture backers. They’re looking for guidance on building the company, the ability to tap into a VC’s network, and help with potential business opportunities.

You've seen how venture capital works from both sides--as an entrepreneur and a venture capitalist. How did your perspective change when you changed roles?

One stark difference for me is how you measure success and outcomes. When you’re in a startup, it’s very easy to measure progress in 90 day increments - what milestones does the company need to hit each quarter? If you’re managing the company effectively, you have a clear set of objectives and the ability to determine if you are on or off track from accomplishing those: did we hit our sales numbers, did we ship the product, etc.? Of course, hitting your objectives alone doesn’t guarantee success--you might have set the wrong objectives or the market needs may shift over time--but it’s a reasonable proxy for measuring interim success. And, if you’re a public company, you get daily real-time feedback on at least the perception of your progress, as measured by the stock price.

In contrast, in VC, not only are there very few near-term guideposts to inform how you are doing, but often times doing nothing may in fact be the right thing to do. For example, you may be tempted to think that making investments on a regular basis is a reasonable objective, but there may be 90-day cycles in which the right thing to do is to make no investments. Coming from an operating role in a company, that can feel odd - that doing nothing is in fact accomplishing your objective - so that takes some getting used to. Similarly, our time horizons are so much longer in venture capital that you have to adjust to not getting that near-instant feedback. We’re making investments today that may not ultimately go public or be acquired for 8-10+ years, so you have to think in very long time frames. And while it can often be the case that “lemons ripen early” (meaning that the unsuccessful companies fail early in a fund’s lifecycle), the harvest cycle for the winners in the portfolio can take what sometimes feels like an eternity.

Your new book, Secrets of Sandhill Road, is literally subtitled Venture Capital and How to Get It? Why did you decide to write a manual like this, especially right now?

Having been through the company-building process myself and after a decade in VC working with thousands of companies and negotiating hundreds of term sheets, I wrote this book to help demystify the process. I’ve found consistently over the years that the appetite for learning more about the VC and entrepreneurship worlds far outstrips the available resources. If you live in a major hub of VC - e.g., Bay Area, Boston, NYC, LA - it’s easier to tap into your local resources to help augment your understanding, but there are a lot of smart people with great ideas in other parts of this country and globally for whom access to information is just not as available. We want, and in all honesty we need, more entrepreneurship - if laying out how the business works encourages that, then I think this book has done its job.

More generally, broader and more diverse access to technology, entrepreneurship and capital (whether or not that capital comes from VC alone) is a critically important thing for sustained job and economic growth - not just here in the U.S., but globally. New company formation is the biggest driver of job creation and, particularly in a world where access to those jobs is highly localized to a few select geographies, I believe we can and should do better.

I’ve seen many founders not fully grasp how the venture capital business works and what incentives investors have. Unless you have the whole picture, it’s hard to know what motivates a venture capitalist, and understand what their expectations will be for founders they invest in. Learning everything you can about VC first is important for that reason, but also to ensure it’s the right form of financing for your business. It doesn’t make your business idea a bad one if you conclude that VC isn’t right for you. In fact, it’s quite the opposite - making sure you have the same goals as your financing partner is probably the best thing you can do as an entrepreneur to maximize your chances for success.

I'd love to hear your thoughts on what's happened in the capital markets over the last 20 years--the good and the bad?

Let’s start with the venture side of the equation, where we’ve seen two major shifts. First, the introduction of seed money as an institutional form of capital. Before the mid-2000s, we mostly had individual angels writing small checks from their personal capital, but over the last 10-15 years we’ve seen hundreds of new institutional seed funds formed. And while the total dollars are still small in the context of the overall size of the VC ecosystem - seed is probably 5-6% of total VC dollars - these new firms have significantly increased the number of new startups and the amount of experimentation for new ideas with minimal capital investment - both of which are very positive for the ecosystem.

The second shift has occurred in the complete other end of the financing spectrum - the very significant amount of dollars that are coming into the late-stage private market. You have this very interesting dynamic in the market: on the one hand, it’s cheaper and easier than ever, in terms of access to capital, to start a company. But at the same time it’s more expensive than ever to scale a company. The latter is a function of the growing global market size that many of these companies are going after and the investor world has responded by being willing to fund these late-stage dollars. In fact, last year something like two-thirds of all venture capital dollars invested went into rounds of $100 million or more.

What about in the public markets?

We’ve seen an overall decline in the number of IPOs, the virtual disappearance of small cap IPOs (sub-$1b market cap) and a significant increase in the time it takes for startups to go public. It used to be that startups went public about 6-7 years from founding; that number is now 10-12 years. While this may be good for private investors in the short term - since most of the appreciation of these companies accrues to them - I believe it’s a terrible thing for the long-term competitiveness of the U.S. financial markets and economic growth. We’re basically taking investment opportunities that used to be available to the broader retail segment of the market through IPOs and now making those available only to those with the means to invest in private assets. We’ve been active within the regulatory community - as have you of course - to try to address this; I think it’s a critical issue to get right.

As one of the first partners at Andreessen Horowitz, have you seen the role or mission of the firm change in response to changes in the markets? What do you look for now as opposed to then--if it's anything different.

Our objectives haven’t changed - we’ve always aspired to back great entrepreneurs who are applying innovative applications of software to try to build enduring, important and independent companies. As you probably know, we’ve been investing against a consistent theme - Marc Andreesseen’s “software is eating the world” - and always at multiple stages of a company’s growth - from seed to later-stage venture.

But, along the way, as entrepreneurs enter new markets, we continue to leave ourselves open-minded about whether the intersection of software with these new markets makes for interesting investment opportunities. For example, when we started the firm, we didn’t contemplate a dedicated investment effort at the intersection of computer science and life sciences, but beginning in 2013 we organically started to see more talented entrepreneurs building companies in this area, leading us to raise our first dedicated Bio fund in 2015. Similarly, we’ve been investing in crypto-related assets going back to our original Coinbase investment in 2013, but it wasn’t until after the Ethereum launch in 2015 that we started to see a critical mass of entrepreneurs entering the broader crypto startup world. We followed that closely and ultimately made the decision in early 2018 that there was enough of a market opportunity there to raise a dedicated fund to this effort.

The other evolution we’ve seen - and I alluded to it in the previous question - is the nature of funding rounds. We’ve always invested across different stages - in fact, one of our very first investments as a firm in 2009 was in the Skype spin-out from eBay - but until very recently, we’ve always done so out of a single fund structure and with the same teams that are focused on our early-stage investment activities. As we’ve continued to see the growing opportunity for later-stage opportunities as a complement to our early-stage efforts, we just this year decided to raise a dedicated fund to focus on later-stage investments. Along with that, we’re building out a dedicated team of investment professionals with expertise in this area to help us increase our coverage efforts.

This question is one of the reasons why I wrote the book, and I think it’s an often misunderstood area. Venture capitalists seek to invest in companies that can be important, enduring and stand-alone businesses in their respective domains. Nearly every entrepreneur that I’ve met seeks the same - they’re dedicating a significant portion of their lives to doing something that is incredibly difficult because they believe in the long-term potential of the business opportunity.

I think things can go awry is when the objectives are not aligned. For example, an entrepreneur might have a great business idea that just may not be in a market big enough to sustain a large, stand-alone company. There’s nothing wrong with that - in fact, it can still allow an entrepreneur to achieve her professional and financial goals. But, taking on venture capital dollars for it probably doesn’t make sense. This is why it’s so important to have a deep understanding of VC so that you can avoid this misalignment.

Specific to the pressure to produce profits, again I don’t think that often becomes a point of contention between VCs and entrepreneurs. As long as everyone believes in the market opportunity and the ultimate objectives, VCs recognize that their money is intended to enable companies to go after that growth, even if it means producing financial losses in the short term. That’s not a license to spend profligately - the unit economics need to work and the market size needs to be big enough to support the growth - but as long as those elements are there, the incentives between VCs and entrepreneurs are aligned.

Can you think of a memorable pitch that you didn't end up investing in?

We were fortunate enough to see the pitch for the Series A round of Square; unfortunately we decided not to invest. Square’s then-CEO and co-founder, Jim McKelvey, had a great organic origin story. The Square dongle was derived from a personal experience of hardship - Jim was a professional glassblower and was frustrated with his inability to use credit cards as a method to sell his wares at local fairs . And while this was a positive signal for us, we unfortunately didn’t have enough time to get to know Jim and evaluate his skills as a CEO. Jack Dorsey at the time was serving as Chairman, but hadn’t committed to playing a full-time executive role in the company. So we passed on the A round.

In this situation, we failed to appreciate two things. The first was that Jack would realize that the best way to maximize the success of the business was for him to become the CEO, which he eventually did - just a few months after that financing round closed. The second was that the Jack’s star power could provide the company with an unfair advantage in the marketplace. For example, Jack told us in the pitch that - just as Ev Williams had done with Twitter - he might be able to use his network of relationships to go on The Oprah Winfrey Show and use that as a way to tell the company story to a massive, broad audience, for no marketing spend. He also had great relationships with financial services luminaries such as Jamie Dimon that might enable him to pitch a partnership to bundle the Square dongle with the J.P. Morgan credit card business to acquire tons of Square customers at a very low cost. These things of course wouldn’t guarantee success for the business, but they were unique potential avenues of distribution that might be available only to someone of Jack’s professional stature - in a startup, every potential advantage can indeed matter.

What's a startup you wish someone would try to build (and we'll leave whether or not you'd invest in it out of the equation!)?

I’m pretty sure this is not a fundable idea, but here goes!

I’ve long been interested in health and, in particular, the role of food choices in determining health. I also believe that if people understood what was in fact healthy - not an easy task given the difficulty in producing scientifically rigorous studies on nutrition - and if they had the luxury of time to prepare healthy meals, they would in fact do so. We’ve certainly made progress over the last twenty or so years in addressing some of these challenges - there are more restaurants that do more to cater to the health-informed and of course we have the plethora of ingredient and meal home delivery services.

But what I think is missing is the perfect substitute for a home cooked meal that caters precisely to the ingredients/nutritional needs of the individual. I’d love to be able to order a meal that incorporates the precise ingredients I want and is made from the precise recipe I provide - just as I would do if I had the time (and patience) to do it on my own. This of course is probably why this will never work as a business - I’m not sure mass customization works economically. But, I am fascinated by the new “cloud kitchens” type models that are being formed and am hopeful that maybe they will crack the code on this.

Have you seen companies that you thought would make it burn out because they didn't have enough time or funding to get their business model right? No need to name names.

Sure - as you know, probably 40-50% of what we invest in at the early stage never makes it to a successful outcome. That is the nature of this business - starting a company is incredibly hard. You have to be able to “willfully suspend disbelief” and be an eternal optimist to take on the task of being an entrepreneur.

Specific to your question, though, I would have guessed coming into this business ten years ago that most failure would be a function of bad product/market fit or, as you mentioned, time and money. But my experience has been that organizational/scaling challenges tend to be more relevant to success or failure. We’ve had examples of where we thought something was a good idea that turned out not to be, or the market just didn’t develop in the way we expected-- those are just part of the risks of being in this business. But the more challenging and disappointing ones are where the product is there and the market is there, but the team just doesn’t coalesce in the way you would hope to really take advantage of the opportunity in front of you. Getting a hire wrong is certainly painful, but waiting too long to get the right person in the seat can be equally damaging. On the positive side, we’ve also seen great cases where executing perfectly on the team buildout and scaling make a huge different in the success of the business.

So, I would turn your question around a little bit in that often not having enough time or money is systematic of something not firing on all cylinders in the business. It’s often more an effect than a cause. Granted there are times where the market opportunity just develops more slowly despite your best efforts and in those cases access to capital alone can indeed be determinative. But, other than a big macro shock that causes all financing to dry up, I think those situations are in the minority.

And last, a question about how you manage all of the above. Do you have a go-to stress relief method?

I have been a runner for as long as I can remember and have always believed in the physical and mental health benefits of running. I love the solitude of it, and I love the fact that it’s the one place I can go where nobody can call or email me for at least a 45 minutes (on a good day). I don’t run to solve business problems, but I do often find that I come up with new ideas or ways to address some existing challenge when I’ve got nothing else to focus on during a run. By the way, airplanes in the pre-WiFi days used to provide similar solace; I’m not sure that I’d wish to not be connected on flights now, but it sure was a mixed bag for me when that technology was deployed!

Thursday, April 25, 2019

Back in March of 2015, I launched a Kickstarter campaign with these words:

“Hi, my name is Eric Ries. I’m an entrepreneur and the author ofThe Lean Startup.

Since writing The Lean Startup, I’ve traveled around the world, helping companies of every size adopt the Lean Startup approach. In just five years, the Lean Startup movement has grown and transformed in ways I never could have imagined. I’ve worked with founders developing new apps, entrepreneurs at hypergrowth pre-IPO tech startups, and managers at the largest, slowest, most heavily-regulated and bureaucratic organizations in the world.

For all of the enthusiasm I’ve witnessed, though, I’ve seen a lot of people who immediately “got” it then struggle after experiencing the challenges that come when trying to build a new company or transform an existing one using this methodology. My work lately has revolved around helping people overcome those obstacles and set up systems, team structures and ways of working that support continuous innovation and sustainable growth.

And now, I want to share what I've learned with you.”

Almost before I knew what had happened, nearly 10,000 people backed the campaign, far exceeding the number I expected and the amount they would entrust me with to bring this project to life. That was when my work on what became The Leaders Guide began. Filled with stories from the trenches, tips, and tools for getting started and then scaling up innovation, it was available to Kickstarter backers only. It also ended up being the MVP for my next book, The Startup Way, which put many of the ideas and tools into greater context in a more narrative form.

But The Leaders Guide, which has a wholly practical approach to implementing Lean Startup, has continued to get passed around as more and more people have realized that innovation and starting small aren’t just for startups any more. It’s a manual for change, and change is the only thing we can be certain of in today’s world, no matter what the organization. It busts the many myths and misperceptions about why Lean Startup can’t work in large organizations, and answers questions about things like how to convince the reluctant among your colleagues, get executive leadership on board, test new products and processes, and make sure you’re building a system that will be sustainable, rather than a flashy new initiative that burns out quickly.

Like the original version, this new edition is filled with stories and tips and tools for leaders in large organizations to use as they start to introduce lean methodology to their colleagues. And by leaders, I really mean anyone, at any level, who wants to bring change in the service of making their company a more flexible, continuously innovative place to work. A lot of the material comes directly from the workshops and sessions I do with companies and will help you really dig into the process.

In addition, I've updated and streamlined the book based on all the learning I've done since it first came out. It covers topics from the basics of Lean Startup all the way through deep dives on MVPs and pivoting, customer discovery, how to use what I call Innovation Accounting to measure progress in the days before whatever you’re building can be looked at in terms of ROI, how to use Lean Startup to change the internal workings and culture of an organization that are hindering change, like HR and Legal, and finally, how to scale it all up throughout an entire company to create a cycle of continuous innovation through entrepreneurial management.

It also includes a new feature I’m particularly happy about: a fascinating series of conversations I had with change leaders at large companies talking about their experiences. There's one at the end of each chapter, and the topics range from the early days of testing these methods to what it's like to scale them up in a large company. Each of these leaders speaks extensively about his or her experiences using these methods at big companies, and offers pragmatic advice along the way. They include Dustin Moskovitz, CEO and founder of Asana; Chris Boeckerman, Director of Innovation at Procter & Gamble; Maxwell Salzburg, CEO and founder of BackerKit; Cindy Alvarez, Principal Product Manager Lead at Microsoft; Jeffrey C. Smith, CEO and co-founder of musical social network Smule; and Jeff Lawson, co-founder and CEO of Twilio; Janice Fraser, Chief Product Officer of Bionic; and David Binetti, creator of the Innovation Options valuation framework for accounting.

I'm so glad to be able to bring their voices--and many others--to you.

Thursday, April 11, 2019

Four years ago, I launched a Kickstarter project called The Leaders Guide. I wanted to pull together a book based on the work I'd been doing with large companies who wanted to implement Lean Startup in order to become more innovative, and Kickstarter seemed like the right place to test the idea. The project was fully funded on its first day, and my work on The Leaders Guide began.

The final product, which went out exclusively to the Kickstarter backers, was a book filled with stories and tools for leaders in large organizations to use as they started to introduce lean methodology to their organizations. And by leaders, I really mean anyone, at any level, who wants to bring change in the service of making their company a more flexible, continuously innovative place to work. A lot of the material came directly from the work I do with companies, and it was meant to be used as a manual for change. The book served as an MVP for my next book, The Startup Way, but has continued to have a thriving life of its own, too.

Now, I'm thrilled to announce that a new audio version of The Leaders Guide is available to everyone for pre-order. I've been working with Audible to record and update it, and the new edition includes all the original tips and tools in the physical book and a lot more, too. One of the additions I enjoyed most was doing a series of interviews with change leaders at large companies talking about their experiences. There's one at the end of each chapter, and they range from the early days of testing these methods to what it's like to scale them up in a large company.

Monday, March 25, 2019

I’m excited to share the news that this year’s Lean Startup Conference has a time and place: October 23-25 at San Francisco’s Palace of Fine Arts.

I always get so much from from spending time with Lean Startup practitioners of every kind, and I love how the conference has grown from its early days. We now welcome everyone from people at startups to big companies, government, and non-profits, in all stages of finding out how Lean Startup helps them thrive in the work they do. Listening to them talk about those discoveries with everyone in attendance is always a great chance for me to learn about all the exciting--and still somehow surprising!--ways Lean Startup is diversifying more and more every year.

As always, there will be talks and panels with amazing speakers and workshops including breakout sessions with people who can guide you through all the aspects of Lean Startup. They’ll all share their unique experiences and techniques, adding to the ever-growing catalog of what Lean Startup looks like in the real world. I’ll be speaking, too--details on that still to come.

Saturday, December 22, 2018

So much happened when the Lean Startup Community came together in Las Vegas last month for this year’s conference that I’m still processing it all. The high levels of learning, great conversations, and most of all camaraderie between entrepreneurs of all kinds was amazing to be a part of. It was great to see so many of you there, and in particular to talk with so many different kinds of Lean Startup practitioners. 700 people joined us in Downtown Las Vegas for our sold out events, and another 2500 participated by livestream from more than 50 countries all over the world (a special shout-out to people in places where the time difference was off-putting but didn’t deter you!).

Las Vegas was a new home for the conference this year, thanks to a partnership with Zappos and Tony Hsieh, with whom I talked as part of the program. (Here’s a shot of us backstage before our fireside chat, in which we answered questions from the audience, and another from during the talk.) The change in location not only gave us all opportunities to see and do new things, but emphasized the reality that entrepreneurship is not about Silicon Valley, or even tech. It’s not about London, or New York, or any of the places we think of as traditional tech hubs. Entrepreneurs are doing incredible things all over the country and all over the world, and in a huge variety of fields and situations. The Lean Startup is ten years old this year--something I never could have imagined back when I was first testing out the idea and getting grief at parties about how bad it was! Its spread is entirely because of the incredible, inspiring work entrepreneurs are doing. The conference panel on Lean Startup Where You Least Expect It was just one of the many events that focused on that. It was made up of people working in medical technology, air purification, and education, as well as the founder of a VC fund investing in nuclear fusion to combat climate change

Hearing about this huge range of projects, with all the gory details included, is what the conference was all about. There were no corporate-approved messages, no perfectly crafted narratives about how easily everything worked out--just real details about problems being solved in all kinds of places. Ann Mei Chang spoke to us about Revolutionizing Social Good with the Lean Startup and her new book Lean Impact, and the challenges and successes to date of using the method in the non-profit space to tackle some of the world’s most pressing issues. We also heard from people at the Department of Defense, and a diverse assortment of hugely successful startups like Kabam, Eventbrite, and The Muse. This great storytelling was accompanied by a whole roster of practical panels and workshops, which covered things like A/B testing, customer discovery, and scaling. You can check out Dave Binetti’s presentation A New Approach to Measuring Product/Market Fit here.

As we head into the new year, I want to thank everyone who helps make Lean Startup a force for change and good in the world. We’re living in a time when legacy institutions of all kinds--political, educational, medical, journalistic--are being attacked. It’s our job to come together to build new ones that more accurately reflect and support the way our world works. I believe Lean Startup is one way to identify and create these new institutions.